What are test rates and how do they impact what I can borrow?

Interest rates have never been lower, with rates well under 3% incredibly common. With the fall out of Covid, money has never been cheaper, but it’s also proving more difficult to get. 

Banks now have a number of criteria that borrowers must meet, and one of these is the stress test. This is a servicing test rate which determines whether a borrower can continue to make repayments on their mortgage if interest rates were to increase. While most banks special interest rates are currently under 3%, many banks are still using test rates of 6.6% - 7% to assess this “stress test”.

This means that in order to borrow money at the current low rates, you need to be able to prove that you can also make the repayments on this higher test figure, should the rates rise. This means for many, the amount that you can borrow can be considerably less than expected, as the banks are basing this off the higher servicing figure. 

While interest rates have plummeted lately, the stress test rates haven’t. Some banks have reduced them slightly, but test rates have not kept in line with the reduction in actual interest rates. This can be incredibly frustrating for borrowers who are wanting to take advantage of the current low rates. 

The banks are being very cautious at the moment, and this means there can be a few more hoops to jump through for borrowers. If you are looking to buy, get in touch with us today and we can ensure you are in the best position to buy, as well as place you with the appropriate lender for your situation.